# Antero Midstream Corp (AM) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Antero Midstream Corp's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1623925/000155837022001278/am-20211231x10k.htm
Accession: 0001558370-22-001278
Filing date: 2022-02-16
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/AM/
All MD&A years: /company/AM/mda/
Next year: /company/AM/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The information provided below supplements, but does not form part of, our consolidated financial statements. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see “Item 1A. Risk Factors.” and the section entitled “Cautionary Statement Regarding Forward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law. In this section, references to “Antero Midstream,” “AM,” the “Company,” “we,” “us,” and “our” refer to Antero Midstream Corporation and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

Overview

We are a growth-oriented midstream energy company formed to own, operate and develop midstream energy assets to primarily service Antero Resources’ production and completion activity. We believe that our strategically located assets and our relationship with Antero Resources have allowed us to become a leading midstream energy company serving the Appalachian Basin and present opportunities to expand our midstream services to other operators in the Appalachian Basin. Our assets consist of gathering pipelines, compressor stations and interests in processing and fractionation plants that collect and process production from Antero Resources’ wells in the Appalachian Basin in West Virginia and Ohio. Our assets also include two independent water handling systems that deliver water from the Ohio River and several regional waterways, which portions of these systems are also utilized to transport flowback and produced water. These water handling systems consist of permanent buried pipelines, surface pipelines and water storage facilities, as well as pumping stations, blending facilities and impoundments to transport the water throughout the pipelines. These services are provided by us directly or through third-parties with which we contract. Our assets also include other flowback and produced water treatment facilities that we use to provide water treatment services to Antero Resources and third-parties.

COVID-19 Pandemic

Since the start of the COVID-19 pandemic, governments have tried to slow the spread of the virus by imposing social distancing guidelines, travel restrictions and stay-at-home orders, among other actions, which caused a significant decrease in activity in the global economy and the demand for oil, and to a lesser extent, natural gas and NGLs. As vaccines have become widely available, social distancing guidelines, travel restrictions and stay-at-home orders have eased, activity in the global economy has increased and demand for oil, natural gas and NGLs, and related commodity pricing, has improved. However, new variants of the virus could cause further commodity market volatility and resulting financial market instability, and these are variables beyond our control that may adversely impact our generation of funds from operating cash flows, distributions from unconsolidated affiliates and our ability to access the capital markets.

As a midstream energy company, we are recognized as an essential business under various federal, state and local regulations related to the COVID-19 pandemic. As such, we have continued to operate throughout the pandemic as permitted under these regulations while taking steps to protect the health and safety of our workers. We have implemented protocols to reduce the risk of an outbreak within our field operations and corporate offices, and these protocols have not reduced Antero Resources’ production and our throughput in a significant manner. A substantial portion of our non-field level employees currently operate in remote work from home arrangements, and we have been able to maintain a consistent level of effectiveness through these arrangements, including maintaining our day-to-day operations, our financial reporting systems and our internal control over financial reporting. We continue to monitor the COVID-19 environment in order to (i) protect the health and safety of our employees and contract workers and (ii) determine when a return to in-office working arrangements will be appropriate.

Neither our nor Antero Resources’ supply chain has experienced any significant interruptions due to the COVID-19 pandemic. Prior to the COVID-19 pandemic, Antero Resources had developed a diverse set of buyers and destinations, as well as in-field and off-site storage capacity for its condensate volumes, and as a result of the pandemic, Antero Resources has expanded its customer base and its condensate storage capacity within the Appalachian Basin. However, if Antero Resources or our other customers were to experience any production curtailments or shut-ins it would reduce throughput for our gathering and processing systems. In addition, if our customers were to delay or discontinue drilling or completion activities, it would reduce the volumes of water that we handle and therefore revenues for our water distribution and handling business.

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As the global economy continues to recover from the effects of the COVID-19 pandemic, economic indicators have continued to strengthen. However, the economy has begun to experience elevated inflation levels as a result of global supply and demand imbalances resulting from the COVID-19 pandemic. For example, the United States Bureau of Labor and Statistics (“BLS”) CPI for all urban consumers increased 7% from December 31, 2020 to December 31, 2021 as compared to the average historical 10-year rate of 2%. Additionally, employment activity has also begun to strengthen as demonstrated by the United States BLS unemployment rate declining from a high of 15% in April 2020 to 4% in December 2021. Inflationary pressures and labor shortages could result in increases to our operating and capital costs that are not fixed, renegotiation of contracts and/or supply agreements and higher labor costs, among others. These economic variables are beyond our control and may adversely impact our business, financial condition, results of operations and future cash flows.

Recent Developments and Highlights

Credit Facility

On October 26, 2021, we entered into an amended and restated senior secured revolving credit facility with lender commitments of $1.25 billion, which matures on October 26, 2026; provided that if on November 17, 2025 any of the 7.875% senior unsecured notes due May 15, 2026 (the “2026 Notes”) are outstanding, the New Credit Facility will mature on such date. We reduced our commitments from $2.13 billion under the Prior Credit Facility to $1.25 billion to better align with our expected future liquidity needs. See Note 10—Long-Term Debt to the consolidated financial statements and “—Capital Resources and Liquidity—Debt Agreements—Credit Facility” for more information.

Issuance of Senior Notes

On June 8, 2021, we issued $750 million in aggregate principal amount of 5.375% senior notes due June 15, 2029 (the “2029 Notes”) at par. The 2029 Notes are unsecured and effectively subordinated to the Credit Facility to the extent of the value of the collateral securing the Credit Facility. The 2029 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by Antero Midstream Corporation, Antero Midstream Partners LP’s (“Antero Midstream Partners”) wholly owned subsidiaries (other than Antero Midstream Finance Corporation) and certain of its future restricted subsidiaries. See Note 10—Long-Term Debt to the consolidated financial statements for more information.

Redemption of Senior Notes

On June 8, 2021, we redeemed all of our outstanding 5.375% Senior Notes Due September 15, 2024 (the “2024 Notes”) at a redemption price of 102.688% of the principal amount therefore, plus accrued and unpaid interest. See Note 10—Long-Term Debt to the consolidated financial statements for more information.

Return of Capital Program

On August 12, 2019, our Board authorized a share repurchase program to opportunistically repurchase up to $300 million of shares of our outstanding common stock. On February 10, 2021, our Board extended this program through June 30, 2023. During the year ended December 31, 2021, we did not repurchase any shares under this program. We currently have approximately $150 million of share repurchase capacity remaining under this program.

On January 12, 2022, the Board declared a cash dividend on the shares of our common stock of $0.225 per share for the quarter ended December 31, 2021. The dividend was paid on February 9, 2022 to stockholders of record as of January 26, 2022. The Board also declared a cash dividend of $138 thousand on the Series A Preferred Stock that was paid on February 14, 2022 in accordance with the terms of the Series A Preferred Stock, which are discussed in Note 14—Equity and Earnings Per Common Share to our consolidated financial statements.

Sources of Our Revenues

Our gathering and compression revenues are driven by the volumes of natural gas we gather and compress, and our water handling revenues are driven by quantities of fresh water delivered to our customers to support their well completion operations and produced water treated. Pursuant to our long-term contracts with Antero Resources, we have secured long-term dedications covering a significant portion of Antero Resources’ current and future acreage for gathering and compression services. We have also entered into a long-term water services agreement covering Antero Resources’ 502,000 net acres in West Virginia and Ohio, with a right of first offer on all future areas of operation. Under the agreement, we receive a fixed fee for all fresh water deliveries by pipeline directly to the well site, subject to annual CPI-based adjustments. In addition, we also provide other fluid handling services. Our fresh water delivery systems and other fluid handling services support well completion and production operations for Antero

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Resources. These services are provided by us directly or through third-parties with which we contract. For other fluid handling services provided by third-parties, Antero Resources reimburses our third-party out-of-pocket costs plus 3%. For other fluid handling services provided by us, we charge Antero Resources a cost of service fee. The initial term of the water services agreement runs to 2035. All of Antero Resources’ existing acreage is dedicated to us for gathering and compression services except for existing third-party commitments. Approximately 127,000 gross leasehold acres characterized by dry gas and liquids-rich production have been previously dedicated to third-party gatherers.

Our gathering and compression operations are substantially dependent upon natural gas and oil production from Antero Resources’ upstream activity in its areas of operation. In addition, there is a natural decline in production from existing wells that are connected to our gathering systems. Although we expect that Antero Resources will continue to devote substantial resources to the development of oil and gas reserves, we have no control over this activity and Antero Resources has the ability to reduce or curtail such development at its discretion.

Our water handling operations are substantially dependent upon the number of wells drilled and completed by Antero Resources, as well as Antero Resources’ production. As of December 31, 2021, Antero Resources had disclosed estimated net proved reserves 17.7 Tcfe, of which 58% was natural gas, 41% were NGLs and 1% was oil. As of December 31, 2021, Antero Resources’ drilling inventory consisted of 2,083 identified potential horizontal well locations, approximately 1,371 of which were located on acreage dedicated to us, providing us with significant opportunity for growth as Antero Resources’ drilling program continues.

Principal Components of Our Cost Structure

The following items are the primary components of our operating expenses.

[[GREPCENT_TABLE]]
[["","\u25cf","Direct Operating. We seek to maximize the profitability of our operations in part by minimizing, to the extent appropriate, expenses directly tied to operating and maintaining our assets. We schedule and conduct maintenance over time to avoid significant variability in our direct operating expense and minimize the impact on our cash flow. Gathering and compression operating costs consist primarily of labor, water disposal, pigging, fuel, monitoring, repair and maintenance, utilities and contract services. Gathering and compression operating costs vary with the miles of pipeline and number of compressor stations in our gathering and compression system. Fresh water operating expenses consist primarily of labor, pigging, monitoring, repair and maintenance and contract services. Fresh water operating costs vary with the miles of pipeline, number of pumping stations and to a lesser extent the number of well completions in the Appalachian Basin for which we deliver fresh water and number of impoundments in our water system. Other fluid handling costs, relate to contract services performed by us and third parties. Our other fluid handling costs consist of labor, monitoring and repair and maintenance costs. The other primary drivers of our direct operating expense include maintenance and contract services, regulatory and compliance expense and ad valorem taxes."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","General and Administrative. Our general and administrative expenses include direct charges and costs charged by Antero Resources. These costs relate to: (i) various business services, including payroll processing, accounts payable processing and facilities management, (ii) various corporate services, including legal, accounting, treasury, information technology and human resources and (iii) compensation, including certain equity-based compensation. These expenses are charged to the Company based on the nature of the expenses and are apportioned based on a combination of the Company\u2019s proportionate share of gross property and equipment, capital expenditures and labor costs, as applicable. Management believes these allocation methodologies are reasonable."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Equity-based compensation includes (i) costs allocated to Antero Midstream by Antero Resources for grants made prior to March 12, 2019 pursuant to the Antero Resources Corporation Long-Term Incentive Plan and (ii) costs related to the Antero Midstream Corporation Long-Term Incentive Plan."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Depreciation. Depreciation consists of our estimate of the decrease in value of the assets capitalized in property and equipment as a result of using the assets throughout the applicable year. Depreciation is computed over the asset\u2019s estimated useful life using the straight-line basis. See Note 8\u2014Property and Equipment to our consolidated financial statements for additional information on our asset classes and estimated lives of our assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Impairment. We evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable. If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to their estimated fair value."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","Interest. We have typically financed a portion of our cash requirements with borrowings under our revolving credit facility and with senior unsecured notes. Our interest expense also includes amortization of deferred financing costs incurred in connection with our revolving credit facility and senior notes, amortization of senior notes premiums and finance leases. See Note 10\u2014Long-Term Debt to our consolidated financial statements and \u201c\u2014Capital Resources and Liquidity\u2014Debt Agreements\u201d for additional information on our debt agreements."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Income tax expense. We are subject to state and federal income taxes but are currently not in a cash tax paying position with respect to state and federal income taxes. The difference between our financial statement income tax expense and our federal income tax liability is primarily due to the differences in the tax and financial statement treatment of our investment in Antero Midstream Partners. We have recorded deferred income tax expense to the extent our deferred tax liabilities exceed our deferred tax assets. Our deferred tax assets result primarily from net operating loss carryforwards. As of December 31, 2021, we had approximately $342 million of U.S. federal net operating loss carryforwards (\u201cNOLs\u201d), and approximately $412 million of state NOLs. The Company currently considers all of its deferred tax assets realizable. The amount of deferred tax assets considered realizable, however, could change as we generate taxable income or as estimates of future taxable income are reduced. See Note 9\u2014Income Taxes to our consolidated financial statements for a discussion of our deferred tax position and income tax expense."]]
[[/GREPCENT_TABLE]]

How We Evaluate Our Operations

We use a variety of financial and operational metrics to evaluate our performance. These metrics help us identify factors and trends that impact our operating results, profitability and financial condition. The key metrics we use to evaluate our business are provided below.

Adjusted EBITDA

We use Adjusted EBITDA as a performance measure to assess the ability of our assets to generate cash sufficient to pay interest costs, support indebtedness and return capital to stockholders. Adjusted EBITDA is a non-GAAP financial measure. See “—Non-GAAP Financial Measures” below for more information regarding this financial measure, including a reconciliation to its most directly comparable GAAP measure.

Gathering and Compression Throughput

We must continually obtain additional supplies of natural gas to maintain or increase throughput on our systems. Our ability to maintain existing supplies of natural gas and obtain additional supplies is primarily impacted by (i) our acreage dedication and the level of successful drilling activity by Antero Resources and (ii) the potential for acreage dedications with and successful drilling by third-party producers. Any increase in our throughput volumes over the near term will likely be driven by Antero Resources continuing its drilling and development activities on its Appalachian Basin acreage.

Water Handling Volumes

Our fresh water volumes are primarily driven by hydraulic fracturing activities conducted as part of well completions. Our other fluid handling volumes are driven by hydraulic fracturing activities and produced water volumes, which are primarily a function of Antero Resources’ completion activities and production. Antero Resources’ consolidated acreage position allows us to provide fresh water and other fluid handling services for Antero Resources’ completion activities in a more efficient manner. However, to the extent that Antero Resources’ drilling and completion schedule is not met, or Antero Resources uses less fresh water and other fluid handling services in its well completion operations than expected (for example, due to a reduction in completions), and production declines, our water volumes may decline.

Results of Operations

We have two operating segments: (i) gathering and processing and (ii) water handling. The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and process gross production from Antero Resources’ wells in the Appalachian Basin, as well as equity in earnings from the Joint Venture and Stonewall Gas Gathering LLC. The water handling segment includes (i) two independent systems that deliver water from sources including the Ohio River, local reservoirs and several regional waterways, (ii) the wastewater treatment facility and related landfill (collectively, the “Clearwater Facility”) that was idled in September 2019 and (iii) other fluid handling services.

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2021

The operating results of our reportable segments were as follows for the years ended December 31, 2020 and 2021:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31, 2020","\u200b"],["\u200b","\u200b","Gathering and","\u200b","Water","\u200b","\u200b","\u200b","Consolidated","\u200b"],["(in thousands)","","Processing","","Handling","","Unallocated (1)","","Total","\u200b"],["Revenues:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Revenue\u2013Antero Resources","\u200b","$","759,459","\u200b","\u200b","259,932","\u200b","\u200b","\u2014","\u200b","\u200b","1,019,391","\u200b"],["Gathering\u2014low pressure rebate","\u200b","\u200b","(48,000)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(48,000)","\u200b"],["Amortization of customer relationships","\u200b","\u200b","(37,086)","\u200b","\u200b","(33,586)","\u200b","\u200b","\u2014","\u200b","\u200b","(70,672)","\u200b"],["Total revenues","\u200b","\u200b","674,373","\u200b","\u200b","226,346","\u200b","\u200b","\u2014","\u200b","\u200b","900,719","\u200b"],["Operating expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Direct operating","\u200b","\u200b","56,508","\u200b","\u200b","108,878","\u200b","\u200b","\u2014","\u200b","\u200b","165,386","\u200b"],["General and administrative (excluding equity-based compensation)","\u200b","\u200b","20,410","\u200b","\u200b","11,796","\u200b","\u200b","7,229","\u200b","\u200b","39,435","\u200b"],["Equity-based compensation","\u200b","\u200b","9,489","\u200b","\u200b","2,388","\u200b","\u200b","901","\u200b","\u200b","12,778","\u200b"],["Facility idling","\u200b","\u200b","\u2014","\u200b","\u200b","15,219","\u200b","\u200b","\u2014","\u200b","\u200b","15,219","\u200b"],["Depreciation","\u200b","\u200b","57,300","\u200b","\u200b","51,490","\u200b","\u200b","\u2014","\u200b","\u200b","108,790","\u200b"],["Impairment of property and equipment","\u200b","\u200b","947","\u200b","\u200b","97,232","\u200b","\u200b","\u2014","\u200b","\u200b","98,179","\u200b"],["Impairment of goodwill","\u200b","\u200b","575,461","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","575,461","\u200b"],["Accretion of asset retirement obligations","\u200b","\u200b","\u2014","\u200b","\u200b","180","\u200b","\u200b","\u2014","\u200b","\u200b","180","\u200b"],["Loss on asset sale","\u200b","\u200b","2,689","\u200b","\u200b","240","\u200b","\u200b","\u2014","\u200b","\u200b","2,929","\u200b"],["Total operating expenses","\u200b","\u200b","722,804","\u200b","\u200b","287,423","\u200b","\u200b","8,130","\u200b","\u200b","1,018,357","\u200b"],["Operating loss","\u200b","\u200b","(48,431)","\u200b","\u200b","(61,077)","\u200b","\u200b","(8,130)","\u200b","\u200b","(117,638)","\u200b"],["Other income (expense):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest expense, net","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(147,007)","\u200b","\u200b","(147,007)","\u200b"],["Equity in earnings of unconsolidated affiliates","\u200b","\u200b","86,430","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","86,430","\u200b"],["Total other income (expense)","\u200b","\u200b","86,430","\u200b","\u200b","\u2014","\u200b","\u200b","(147,007)","\u200b","\u200b","(60,577)","\u200b"],["Income (loss) before income taxes","\u200b","\u200b","37,999","\u200b","\u200b","(61,077)","\u200b","\u200b","(155,137)","\u200b","\u200b","(178,215)","\u200b"],["Income tax benefit","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","55,688","\u200b","\u200b","55,688","\u200b"],["Net income (loss) and comprehensive income (loss)","\u200b","$","37,999","\u200b","\u200b","(61,077)","\u200b","\u200b","(99,449)","\u200b","\u200b","(122,527)","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted EBITDA (2)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","850,209","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Adjusted EBITDA is a non-GAAP financial measure. For a discussion of this measure, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see \u201c\u2014Non-GAAP Financial Measures\u201d."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31, 2021","\u200b"],["\u200b","\u200b","Gathering and","\u200b","Water","\u200b","\u200b","\u200b","Consolidated","\u200b"],["(in thousands)","","Processing","","Handling","","Unallocated (1)","","Total","\u200b"],["Revenues:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Revenue\u2013Antero Resources","\u200b","$","761,737","\u200b","\u200b","218,621","\u200b","\u200b","\u2014","\u200b","\u200b","980,358","\u200b"],["Revenue\u2013third-party","\u200b","\u200b","\u2014","\u200b","\u200b","516","\u200b","\u200b","\u2014","\u200b","\u200b","516","\u200b"],["Gathering\u2014low pressure rebate","\u200b","\u200b","(12,000)","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(12,000)","\u200b"],["Amortization of customer relationships","\u200b","\u200b","(37,086)","\u200b","\u200b","(33,586)","\u200b","\u200b","\u2014","\u200b","\u200b","(70,672)","\u200b"],["Total revenues","\u200b","\u200b","712,651","\u200b","\u200b","185,551","\u200b","\u200b","\u2014","\u200b","\u200b","898,202","\u200b"],["Operating expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Direct operating","\u200b","\u200b","65,983","\u200b","\u200b","91,137","\u200b","\u200b","\u2014","\u200b","\u200b","157,120","\u200b"],["General and administrative (excluding equity-based compensation)","\u200b","\u200b","26,261","\u200b","\u200b","20,317","\u200b","\u200b","3,731","\u200b","\u200b","50,309","\u200b"],["Equity-based compensation","\u200b","\u200b","10,119","\u200b","\u200b","2,500","\u200b","\u200b","910","\u200b","\u200b","13,529","\u200b"],["Facility idling","\u200b","\u200b","\u2014","\u200b","\u200b","3,997","\u200b","\u200b","\u2014","\u200b","\u200b","3,997","\u200b"],["Depreciation","\u200b","\u200b","59,692","\u200b","\u200b","49,098","\u200b","\u200b","\u2014","\u200b","\u200b","108,790","\u200b"],["Impairment of property and equipment","\u200b","\u200b","4,608","\u200b","\u200b","434","\u200b","\u200b","\u2014","\u200b","\u200b","5,042","\u200b"],["Accretion of asset retirement obligations","\u200b","\u200b","\u2014","\u200b","\u200b","460","\u200b","\u200b","\u2014","\u200b","\u200b","460","\u200b"],["Loss on asset sale","\u200b","\u200b","3,628","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","3,628","\u200b"],["Total operating expenses","\u200b","\u200b","170,291","\u200b","\u200b","167,943","\u200b","\u200b","4,641","\u200b","\u200b","342,875","\u200b"],["Operating income","\u200b","\u200b","542,360","\u200b","\u200b","17,608","\u200b","\u200b","(4,641)","\u200b","\u200b","555,327","\u200b"],["Other income (expense):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest expense, net","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(175,281)","\u200b","\u200b","(175,281)","\u200b"],["Equity in earnings of unconsolidated affiliates","\u200b","\u200b","90,451","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","90,451","\u200b"],["Loss on early extinguishment of debt","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(21,757)","\u200b","\u200b","(21,757)","\u200b"],["Total other income (expense)","\u200b","\u200b","90,451","\u200b","\u200b","\u2014","\u200b","\u200b","(197,038)","\u200b","\u200b","(106,587)","\u200b"],["Income before income taxes","\u200b","\u200b","632,811","\u200b","\u200b","17,608","\u200b","\u200b","(201,679)","\u200b","\u200b","448,740","\u200b"],["Income tax expense","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","(117,123)","\u200b","\u200b","(117,123)","\u200b"],["Net income and comprehensive income","\u200b","$","632,811","\u200b","\u200b","17,608","\u200b","\u200b","(318,802)","\u200b","\u200b","331,617","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Adjusted EBITDA (2)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","876,438","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Corporate expenses that are not directly attributable to either the gathering and processing or water handling segments."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","Adjusted EBITDA is a non-GAAP financial measure. For a discussion of this measure, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, see \u201c\u2014Non-GAAP Financial Measures\u201d."]]
[[/GREPCENT_TABLE]]

​

46

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The following table sets forth the operating data for Antero Midstream:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended","\u200b","Amount of","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Increase","\u200b","Percentage"],["\u200b","","2020","","2021","","or Decrease","","Change"],["Operating Data:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Gathering\u2014low pressure (MMcf)","\u200b","\u200b","1,069,822","\u200b","\u200b","1,060,444","\u200b","\u200b","(9,378)","\u200b","\u200b","(1)","%"],["Compression (MMcf)","\u200b","\u200b","991,726","\u200b","\u200b","1,006,366","\u200b","\u200b","14,640","\u200b","\u200b","1","%"],["Gathering\u2014high pressure (MMcf)","\u200b","\u200b","1,058,119","\u200b","\u200b","1,037,094","\u200b","\u200b","(21,025)","\u200b","\u200b","(2)","%"],["Fresh water delivery (MBbl)","\u200b","\u200b","40,076","\u200b","\u200b","34,572","\u200b","\u200b","(5,504)","\u200b","\u200b","(14)","%"],["Other fluid handling (MBbl)","\u200b","\u200b","20,945","\u200b","\u200b","16,930","\u200b","\u200b","(4,015)","\u200b","\u200b","(19)","%"],["Wells serviced by fresh water delivery","\u200b","\u200b","91","\u200b","\u200b","75","\u200b","\u200b","(16)","\u200b","\u200b","(18)","%"],["Gathering\u2014low pressure (MMcf/d)","\u200b","\u200b","2,923","\u200b","\u200b","2,905","\u200b","\u200b","(18)","\u200b","\u200b","(1)","%"],["Compression (MMcf/d)","\u200b","\u200b","2,710","\u200b","\u200b","2,757","\u200b","\u200b","47","\u200b","\u200b","2","%"],["Gathering\u2014high pressure (MMcf/d)","\u200b","\u200b","2,891","\u200b","\u200b","2,841","\u200b","\u200b","(50)","\u200b","\u200b","(2)","%"],["Fresh water delivery (MBbl/d)","\u200b","\u200b","109","\u200b","\u200b","95","\u200b","\u200b","(14)","\u200b","\u200b","(13)","%"],["Other fluid handling (MBbl/d)","\u200b","\u200b","57","\u200b","\u200b","46","\u200b","\u200b","(11)","\u200b","\u200b","(19)","%"],["Average Realized Fees:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average gathering\u2014low pressure fee ($/Mcf) (1)","\u200b","$","0.33","\u200b","\u200b","0.33","\u200b","\u200b","\u2014","\u200b","\u200b","*","\u200b"],["Average compression fee ($/Mcf)","\u200b","$","0.20","\u200b","\u200b","0.20","\u200b","\u200b","\u2014","\u200b","\u200b","*","\u200b"],["Average gathering\u2014high pressure fee ($/Mcf)","\u200b","$","0.20","\u200b","\u200b","0.20","\u200b","\u200b","\u2014","\u200b","\u200b","*","\u200b"],["Average fresh water delivery fee ($/Bbl)","\u200b","$","3.96","\u200b","\u200b","3.97","\u200b","\u200b","0.01","\u200b","\u200b","*","\u200b"],["Joint Venture Operating Data:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Processing\u2014Joint Venture (MMcf)","\u200b","\u200b","523,739","\u200b","\u200b","543,649","\u200b","\u200b","19,910","\u200b","\u200b","4","%"],["Fractionation\u2014Joint Venture (MBbl)","\u200b","\u200b","13,200","\u200b","\u200b","13,644","\u200b","\u200b","444","\u200b","\u200b","3","%"],["Processing\u2014Joint Venture (MMcf/d)","\u200b","\u200b","1,431","\u200b","\u200b","1,489","\u200b","\u200b","58","\u200b","\u200b","4","%"],["Fractionation\u2014Joint Venture (MBbl/d)","\u200b","\u200b","36","\u200b","\u200b","37","\u200b","\u200b","1","\u200b","\u200b","3","%"]]
[[/GREPCENT_TABLE]]

*Not meaningful or applicable.

[[GREPCENT_TABLE]]
[["(1)","The year ended December 31, 2021 average realized fee does not include $2.4 million of low pressure gathering fee revenues which volumes relate to prior periods."]]
[[/GREPCENT_TABLE]]

​

Revenues. Total revenues decreased by $3 million, from $901 million, including amortization of customer relationships of $71 million, for the year ended December 31, 2020, to $898 million, including amortization of customer relationships of $71 million, for the year ended December 31, 2021. Gathering and processing revenues increased by 6%, from $675 million for the year ended December 31, 2020 to $713 million for the year ended December 31, 2021. Water handling revenues decreased by 18%, from $226 million for the year ended December 31, 2020 to $185 million for the year ended December 31, 2021. These fluctuations primarily resulted from the following:

Gathering and Processing

[[GREPCENT_TABLE]]
[["","\u25cf","Low pressure gathering revenue increased $37 million period over period primarily due to $36 million in lower rebates to Antero Resources during the year ended December 31, 2021, partially offset by decreased throughput volumes of 9 Bcf, or 18 MMcf/d. Low pressure gathering volumes decreased between periods primarily due to downtime at certain processing and fractionation facilities during the third quarter of 2021, partially offset by 69 additional wells connected to our system since December 31, 2020."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Compression revenue increased $4 million period over period due to increased throughput volumes of 15 Bcf, or 47 MMcf/d, primarily due to additional wells connected to our system since December 31, 2020, and one new compressor that came online during the summer of 2020, partially offset by downtime at certain processing and fractionation facilities during the third quarter of 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","High pressure gathering revenue decreased $3 million period over period due to decreased throughput volumes of 21 Bcf, or 50 MMcf/d. The high pressure gathering volumes decreased period over period primarily as a result of downtime at certain processing and fractionation facilities during the third quarter of 2021, partially offset by 69 new wells connected to our system since December 31, 2020."]]
[[/GREPCENT_TABLE]]

47

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Water Handling

[[GREPCENT_TABLE]]
[["","\u25cf","Fresh water delivery revenue decreased $21 million period over period due to decreased fresh water delivery volumes of 6 MMBbl, or 14 MBbl/d, as a result of 16 fewer wells completed during the year ended December 31, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Other fluid handling services revenue decreased $19 million period over period primarily due to a $25 million decrease in services that are billed at cost plus 3% as a result of increased use of our water blending services and cost reductions, partially offset by a $6 million increase in water blending services."]]
[[/GREPCENT_TABLE]]

Direct operating expenses. Total direct operating expenses decreased by 5%, from $165 million for the year ended December 31, 2020 to $157 million for the year ended December 31, 2021. Gathering and processing direct operating expenses increased 17% from $56 million for the year ended December 31, 2020 to $66 million for the year ended December 31, 2021 primarily due to higher maintenance expense and ad valorem taxes between periods, as well as increased expense from one new compressor station that came online in the summer of 2020. Water handling direct operating expenses decreased by 16%, from $109 million for the year ended December 31, 2020 to $91 million for the year ended December 31, 2021. The decrease was primarily due to lower costs associated with third-party other fluid handling services of $25 million, partially offset by higher blending costs as a result of increased blending volumes between periods.

General and administrative (excluding equity-based compensation) expenses. General and administrative expenses (excluding equity-based compensation expense) increased 28%, from $39 million for the year ended December 31, 2020 to $50 million for the year ended December 31, 2021 primarily due to (i) legal costs associated with the Clearwater Facility, (ii) higher salary and wage expense, which includes our annual incentive program that was temporarily and significantly reduced during 2020 and (iii) higher costs allocated to us from Antero Resources during 2021, partially offset by cost reduction efforts between periods.

Equity-based compensation expenses. Equity-based compensation expenses remained relatively consistent at $13 million and $14 million for the years ended December 31, 2020 and 2021, respectively.

Facility idling expenses. Facility idling expenses decreased 74%, from $15 million for the year ended December 31, 2020 to $4 million for the year ended December 31, 2021 primarily due to reduced Clearwater Facility decommissioning costs between periods.

Depreciation expense. Total depreciation expense remained consistent at $109 million for each of the years ended December 31, 2020 and 2021.

Impairment of property and equipment expense. Impairment of property and equipment expense of $98 million for the year ended December 31, 2020 was primarily for the impairment of fresh water delivery assets in the Utica Shale region. Impairment of property and equipment expense of $5 million for the year ended December 31, 2021 was primarily due to canceled project write-downs as well as a lower of cost or market adjustment for pipe inventory.

Impairment of goodwill expense. Impairment of goodwill expense of $575 million for the year ended December 31, 2020 reflects an impairment of the goodwill that was associated with our gathering system due to declines in commodity prices and the industry environment. All of our goodwill was fully impaired during the year ended December 31, 2020.

Loss on asset sale. Loss on asset sale remained relatively consistent at $3 million and $4 million for the years ended December 31, 2020 and 2021, respectively, and primarily relate to sales of excess pipe inventory.

Interest expense. Interest expense increased by 19%, from $147 million for the year ended December 31, 2020 to $175 million for the year ended December 31, 2021 primarily due to the issuance of (i) $550 million of 2026 Notes on November 10, 2020 and (ii) $750 million of 2029 Notes on June 8, 2021, partially offset by lower borrowings under the Credit Facility during the year ended December 31, 2021 and the redemption of all $650 million of the 2024 Notes on June 8, 2021.

Equity in earnings of unconsolidated affiliates. Equity in earnings in unconsolidated affiliates increased by 5%, from $86 million for the year ended December 31, 2020 to $90 million for the year ended December 31, 2021 primarily due to an increase in the level of volume throughput at the Joint Venture between periods, including one new Joint Venture processing plant with nameplate capacity of 200 MMcf/d being placed in service during July 2021, partially offset by the effects of the processing plant and fractionation facility downtime during the third quarter of 2021.

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Loss on early extinguishment of debt. Loss on early extinguishment of debt for the year ended December 31, 2021 of $22 million primarily relates to the redemption of all $650 million of the 2024 Notes at a premium to par of $17 million as well as the write-off of $6 million of unamortized deferred financing costs, partially offset by $2 million of unamortized premium.

Income tax benefit (expense). Income tax benefit for the year ended December 31, 2020 was $56 million or an effective tax rate of 31.2% primarily due to the loss before taxes for the period coupled with an $11 million rate benefit related to the carryback of net operating losses to prior tax years. Income tax expense for the year ended December 31, 2021 was $117 million primarily due to income before taxes for the period which reflects an effective tax rate of 26.1% primarily due to the effects of state income taxes.

Net income (loss). Net loss was $123 million for the year ended December 31, 2020 primarily due to a $575 million impairment of goodwill for our gathering system and an $89 million impairment of our freshwater delivery assets. Net income was $332 million for the year ended December 31, 2021, primarily due to higher gathering and processing revenues and lower (i) impairment of property and equipment, (ii) direct operating expense and (iii) facility idling expense between periods, offset by lower water handling revenues and higher (i) interest expense, (ii) loss on early extinguishment of debt and (iii) general and administrative expense between periods.

Adjusted EBITDA. Adjusted EBITDA increased by 3%, from $850 million for the year ended December 31, 2020 to $876 million for the year ended December 31, 2021. The increase was primarily due to increased gathering and compression revenues and decreased direct operating expense and facility idling costs between periods, partially offset by lower water handling revenues and higher general and administrative expense between periods. For a discussion of the non-GAAP financial measure Adjusted EBITDA, including a reconciliation to its most directly comparable financial measure calculated and presented in accordance with GAAP, read “—Non-GAAP Financial Measures” below.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2020

See “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations —Results of Operations” in our 2020 Annual Report on Form 10-K for a discussion of the results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2020.

Capital Resources and Liquidity

Sources and Uses of Cash

Capital resources and liquidity are provided by operating cash flows, borrowings under our New Credit Facility and capital market transactions. We expect that the combination of these capital resources will be adequate to meet our working capital requirements, capital expenditures program, expected quarterly cash dividends and share repurchases under our share repurchases program for at least the next 12 months.

During the year ended December 31, 2021, we paid dividends of $0.98 per share, or a total of $471 million, to holders of our common stock, as applicable, and we paid $550 thousand of dividends on our Series A Preferred Stock. On January 12, 2022, the Board declared a cash dividend on the shares of our common stock of $0.225 per share for the quarter ended December 31, 2021 to be paid on February 9, 2022 to stockholders of record as of January 26, 2022. The Board also declared an aggregate cash dividend of $138 thousand on our Series A Preferred Stock that was paid on February 14, 2022. As of December 31, 2021, there were dividends in the amount of $69 thousand accumulated in arrears on our Series A Preferred Stock.

As of December 31, 2021, we did not have any off-balance sheet arrangements.

​

Cash Flows

The following table and discussion presents a summary of our net cash provided by operating activities, investing activities and financing activities for the periods indicated:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["(in thousands)","","2020","","2021","\u200b"],["Net cash provided by operating activities","\u200b","$","753,382","\u200b","\u200b","709,752","\u200b"],["Net cash used in investing activities","\u200b","\u200b","(219,231)","\u200b","\u200b","(233,242)","\u200b"],["Net cash used in financing activities","\u200b","\u200b","(534,746)","\u200b","\u200b","(477,150)","\u200b"],["Net decrease in cash and cash equivalents","\u200b","$","(595)","\u200b","\u200b","(640)","\u200b"]]
[[/GREPCENT_TABLE]]

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2021

Operating Activities. Net cash provided by operating activities was $753 million and $710 million for the years ended December 31, 2020 and 2021, respectively. The decrease in net cash provided by operating activities for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily the result of lower water handling revenues, higher interest expense and general and administrative expense and increased cash used for working capital, excluding income tax receivable, between periods, partially offset by (i) higher gathering and processing revenues, (ii) lower direct operating expense and facility idling costs and (iii) decreased income tax refunds between periods.

Investing Activities. Net cash flows used in investing activities was $219 million and $233 million for the years ended December 31, 2020 and 2021, respectively. The increase in cash flows used in investing activities was primarily due to (i) a $29 million increase in additions to our gathering system, (ii) a $7 million increase in additions to our water handling system and (iii) $1 million increase in proceeds from excess pipe inventory sales, partially offset by a $23 million decrease in investments made in unconsolidated affiliates between periods.

Financing Activities. Net cash used in financing activities was $535 million and $477 million for the years ended December 31, 2020 and 2021, respectively. Net cash used in financing activities for the year ended December 31, 2021 included: (i) issuance of the 2029 Notes of $750 million; (ii) repayment of the 2024 Notes of $667 million, which includes the redemption premium at 102.688% of par, (iii) total dividends to our common stockholders and preferred stockholders of $472 million; (iv) $66 million in net payments on the Credit Facility; and (v) $17 million in deferred financing costs payments associated with the issuance of the 2029 Notes and the senior secured revolving credit facility amendment. Net cash used in financing activities for the year ended December 31, 2020 included: (i) issuance of the 2026 Notes of $550 million; (ii) total dividends to our common stockholders and preferred stockholders of $590 million; (iii) $346 million in net payments on the Credit Facility; (iv) $125 million (net of $8 million reflected in the cash flows provided by operating activities related to the accretion of fair value) paid to Antero Resources for the fair value of contingent acquisition consideration at the date of acquisition; (v) $25 million of common stock repurchases; and (vi) $6 million in deferred financing costs payments associated with the issuance of the 2026 Notes.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2020

See “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations —Capital Resources and Liquidity” in our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of the cash flows for the year ended December 31, 2019 compared to the year ended December 31, 2020.

Capital Investments

Our capital expenditures for the year ended December 31, 2021 were $262 million, including $217 million for gathering and compression infrastructure, $43 million for water infrastructure and $2 million for the Joint Venture.

The Board approved a 2022 capital budget with a range of $275 million to $300 million, which includes growth capital supporting the increased volumes expected from Antero Resources’ drilling partnership in addition to its maintenance capital program for 2022. Our capital budgets may be adjusted as business conditions warrant. If natural gas, NGLs and oil prices decline to levels below acceptable levels or costs increase to levels above acceptable levels, Antero Resources could choose to defer a significant portion of its budgeted capital expenditures until later periods. As a result, we may also defer a significant portion of our budgeted capital expenditures to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flows. We routinely monitor and adjust our capital expenditures in response to changes in Antero Resources’ development plans, changes in prices, availability of financing, acquisition costs, industry conditions, the timing of regulatory approvals, success or lack of success in Antero Resources’ drilling activities, contractual obligations, internally generated cash flows and other factors both within and outside our control.

Debt Agreements

Credit Facility

Antero Midstream Partners, as borrower (the “Borrower”), an indirect, wholly owned subsidiary of Antero Midstream Corporation, has a senior secured revolving credit facility with a consortium of banks. On October 26, 2021, we entered into an amended and restated senior secured revolving credit facility, the New Credit Facility. The New Credit Facility provides for borrowing under either Adjusted Term Secured Overnight Financing Rate (“SOFR”) or the Base Rate (as each term is defined in the New Credit Facility).

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The New Credit Facility has lender commitments of $1.25 billion and matures on October 26, 2026; provided that if on November 17, 2025 any of the 2026 Notes are outstanding, the New Credit Facility will mature on such date. As of December 31, 2021, we had $547 million of borrowings and no letters of credit outstanding under the New Credit Facility.

We have a choice of borrowing at Adjusted Term SOFR or at the base rate. Principal amounts borrowed are payable on the maturity date with such borrowings bearing interest that is payable (i) with respect to base rate loans, quarterly and (ii) with respect to SOFR Loans, the last day of each Interest Period (as defined below); provided that if any Interest Period for a SOFR Loan exceeds three months, interest will be payable on the respective dates that fall every three months after the beginning of such Interest Period. SORF Loans bear interest at a rate per annum equal to the rate for SOFR rate loans for three or six months (the “Interest Period”) plus an applicable margin ranging from 150 to 250 basis points (subject to certain exceptions), depending on the leverage ratio then in effect. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month SOFR Rate loans plus 100 basis points, plus an applicable margin ranging from 50 to 150 basis points (subject to certain exceptions) depending on the leverage ratio then in effect.

The Credit Facility is guaranteed by our subsidiaries and is secured by mortgages on substantially all of Antero Midstream Partners’ and its subsidiaries’ properties. The New Credit Facility contains restrictive covenants that may limit our ability to, among other things:

[[GREPCENT_TABLE]]
[["","\u25cf","incur additional indebtedness;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","sell assets;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","make loans to others;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","make investments and acquisitions;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","enter into mergers;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","make certain restricted payments;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","incur liens; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","engage in certain other transactions without the prior consent of the lenders."]]
[[/GREPCENT_TABLE]]

The Credit Facility also requires us to maintain the following financial ratios (subject to certain exceptions):

[[GREPCENT_TABLE]]
[["","\u25cf","a consolidated interest coverage ratio, which is the ratio of our consolidated EBITDA to its consolidated current interest charges of at least 2.5 to 1.0 at the end of each fiscal quarter;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","a consolidated total leverage ratio, which is the ratio of consolidated debt to consolidated EBITDA, of not more than 5.00 to 1.00 at the end of each fiscal quarter; provided that, at our election (the \u201cFinancial Covenant Election\u201d), the consolidated total leverage ratio shall be no more than 5.25 to 1.0; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","after a Financial Covenant Election, a consolidated senior secured leverage ratio covenant rather than the consolidated total leverage ratio covenant, which is the ratio of consolidated senior secured debt to consolidated EBITDA, of not more than 3.75 to 1.0."]]
[[/GREPCENT_TABLE]]

We were in compliance with the applicable covenants and ratios as of December 31, 2021.

See Note 10—Long-Term Debt to the unaudited condensed consolidated financial statements for more information on our Credit Facility.

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Senior Notes

The following table summarizes the material terms of our senior unsecured notes as of December 31, 2021:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2026 Notes","\u200b","2027 Notes","\u200b","2028 Notes","\u200b","2029 Notes","\u200b"],["Outstanding principal (in thousands)","\u200b","$","550,000","\u200b","$","650,000","\u200b","$","650,000","\u200b","$","750,000","\u200b"],["Interest rate","\u200b","\u200b","7.875","%","\u200b","5.75","%","\u200b","5.75","%","\u200b","5.375","%"],["Maturity date","\u200b","\u200b","May 15, 2026","\u200b","\u200b","March 1, 2027","\u200b","\u200b","January 15, 2028","\u200b","\u200b","June 15, 2029","\u200b"],["Interest payment dates","\u200b","\u200b","May 15, Nov. 15","\u200b","\u200b","Mar. 1, Sept. 1","\u200b","\u200b","Jan. 15, July 15","\u200b","\u200b","Jun. 15, Dec. 15","\u200b"],["Make-whole redemption date (1)","\u200b","\u200b","May 15, 2025","\u200b","\u200b","March 1, 2025","\u200b","\u200b","January 15, 2026","\u200b","\u200b","June 15, 2026","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","On or after these dates, we may redeem the applicable series of senior notes, in whole or in part, at a redemption price equal to 100% of the principal amount redeemed, together with accrued and unpaid interest up to the redemption date. Prior to such date, we may, in certain circumstances, redeem the notes at a redemption price that includes an applicable premium as defined in the indentures to such notes."]]
[[/GREPCENT_TABLE]]

​

See Note 10—Long-Term Debt to the consolidated financial statements for more information on our senior notes.

Non-GAAP Financial Measures

​

We use Adjusted EBITDA as an important indicator of our performance. We define Adjusted EBITDA as net income before net interest expense, income tax expense, depreciation, impairment, accretion of asset retirement obligations, equity-based compensation, excluding equity in earnings of unconsolidated affiliates, amortization of customer relationships, loss on early extinguishment of debt and loss on asset sale and including cash distributions from unconsolidated affiliates.

We use Adjusted EBITDA to assess:

● the financial performance of our assets, without regard to financing methods capital structure or historical cost basis;

● our operating performance and return on capital as compared to other publicly traded companies in the midstream energy sector, without regard to financing or capital structure; and

● the viability of acquisitions and other capital expenditure projects.

Adjusted EBITDA is a non-GAAP financial measure. The GAAP measure most directly comparable to Adjusted EBITDA is net income (loss). The non-GAAP financial measure of Adjusted EBITDA should not be considered as an alternative to the GAAP measure of net income (loss). Adjusted EBITDA presentations are not made in accordance with GAAP and have important limitations as an analytical tool because they include some, but not all, items that affect net income (loss). You should not consider Adjusted EBITDA in isolation or as a substitute for analyses of results as reported under GAAP. Our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other corporations.

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The following table represents a reconciliation of our Adjusted EBITDA to the most directly comparable GAAP financial measure for the periods presented:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["(in thousands)","\u200b","2020","\u200b","2021","\u200b"],["Reconciliation of Net Income (Loss) to Adjusted EBITDA:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net income (loss)","\u200b","$","(122,527)","\u200b","\u200b","331,617","\u200b"],["Interest expense, net","\u200b","\u200b","147,007","\u200b","\u200b","175,281","\u200b"],["Income tax expense (benefit)","\u200b","\u200b","(55,688)","\u200b","\u200b","117,123","\u200b"],["Depreciation expense","\u200b","\u200b","108,790","\u200b","\u200b","108,790","\u200b"],["Amortization of customer relationships","\u200b","\u200b","70,672","\u200b","\u200b","70,672","\u200b"],["Equity-based compensation","\u200b","\u200b","12,778","\u200b","\u200b","13,529","\u200b"],["Impairment","\u200b","\u200b","673,640","\u200b","\u200b","5,042","\u200b"],["Accretion of asset retirement obligations","\u200b","\u200b","180","\u200b","\u200b","460","\u200b"],["Equity in earnings of unconsolidated affiliates","\u200b","\u200b","(86,430)","\u200b","\u200b","(90,451)","\u200b"],["Distributions from unconsolidated affiliates","\u200b","\u200b","98,858","\u200b","\u200b","118,990","\u200b"],["Loss on early extinguishment of debt","\u200b","\u200b","\u2014","\u200b","\u200b","21,757","\u200b"],["Loss on asset sale","\u200b","\u200b","2,929","\u200b","\u200b","3,628","\u200b"],["Adjusted EBITDA","\u200b","$","850,209","\u200b","\u200b","876,438","\u200b"]]
[[/GREPCENT_TABLE]]

​

Critical Accounting Policies and Estimates

The following discussion relates to the critical accounting policies and estimates for both the Company and our predecessor, AMGP. The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements. We provide expanded discussion of our more significant accounting policies, estimates and judgments below. We believe these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements. See Note 2—Summary of Significant Accounting Policies to our consolidated financial statements for a discussion of additional accounting policies and estimates made by management.

Fair Value Measurement

The FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value, establishes a framework for measuring fair value, and sets forth disclosure requirements about fair value measurements. This guidance also relates to all nonfinancial assets and liabilities that are not recognized or disclosed on a recurring basis (e.g., the initial recognition of asset retirement obligations and impairments of long-lived assets). The fair value is the price that we estimate would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is used to prioritize inputs to valuation techniques used to estimate fair value. An asset or liability subject to the fair value requirements is categorized within the hierarchy based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The highest priority (Level 1) is given to unadjusted quoted market prices in active markets for identical assets or liabilities, and the lowest priority (Level 3) is given to unobservable inputs. Level 2 inputs are data, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.

Business Combination

We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, with any remaining difference recorded as goodwill. For acquisitions, management engages an independent valuation specialist to assist with the determination of fair value of the assets acquired, liabilities assumed and goodwill, based on recognized business valuation methodologies.  If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded.  Subsequent to the acquisition, and not later than

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one year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the acquisition date.  An adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period of the adjustment. Acquisition-related costs are expensed as incurred in connection with each business combination.

We accounted for the Transactions under the acquisition method of accounting and estimated the fair value of assets acquired and liabilities assumed at March 12, 2019. In connection with the Transactions, the Company, among other things, issued shares of common stock valued at the closing market price of the common shares at the effective time of the Transactions, which was a Level 1 measurement.

We used the discounted cash flow approach, which is an income statement technique, to estimate the fair value of the customer relationships and investments in unconsolidated affiliates using a weighted-average cost of capital of 14.1%, which is based on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy. We also used this approach in combination with the cost approach to estimate the fair value of property and equipment whereby certain property and equipment was adjusted for recent purchases of similar items, economic and functional obsolescence, location, normal useful lives and capacity (if applicable). To estimate the fair value of the long-term debt, we used Level 2 market data inputs.

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business.  We test goodwill for impairment annually in the fourth quarter and when events or changes in circumstances indicate that the fair value of a reporting unit with goodwill has been reduced below its carrying value.  The impairment test requires allocating goodwill and other assets and liabilities to reporting units.  The fair value of each reporting unit is determined and compared to the carrying value of the reporting unit.  The fair value is calculated using the expected present value of future cash flows method. Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates and future capital requirements. If the fair value of the reporting unit is less than the carrying value, including goodwill, the excess of the book value over the fair value of goodwill is charged to net income as an impairment expense.

We utilized a combination of approaches to estimate the fair value of our assets including the discounted cash flow approach, comparable company method and the cost approach, whereby certain property and equipment was adjusted for recent purchases of similar items, economic and functional obsolescence, location, normal useful lives and capacity (if applicable). We performed our fourth quarter of 2019 and first quarter of 2020 quantitative analysis using a weighted-average cost of capital of 10.0% and 18.0%, respectively, which is based on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy.

Property and Equipment

Property and equipment primarily consists of gathering pipelines, compressor stations and the Clearwater Facility. We evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable.  Generally, the basis for making such assessments is undiscounted future cash flow projections for the assets being assessed.  If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair values, which are calculated using the expected present value of future cash flows method. Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates and future capital requirements.

We utilized a discounted cash flow approach to estimate the fair value of our assets. We performed our first quarter of 2020 quantitative analysis using a weighted-average cost of capital of 19.0%, which is based on significant inputs not observable in the market, and thus represents a Level 3 measurement within the fair value hierarchy.

Contingent Acquisition Consideration

In connection with our September 2015 acquisition of certain water treatment assets, we agreed to pay Antero Resources (a) $125 million in cash if we delivered 176 million barrels or more of fresh water during the period between January 1, 2017 and December 31, 2019 and (b) an additional $125 million in cash if we delivered 219 million barrels or more of fresh water during the period between January 1, 2018 and December 31, 2020. This contingent consideration liability was valued based on Level 3 inputs related to the expected average volumes and weighted average cost of capital and was recorded at the time of such acquisition in accordance with accounting guidance for business combinations. In January 2020, Antero Midstream Partners paid Antero Resources $125 million and, as of December 31, 2020, no additional contingent acquisition consideration was earned.

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General and Administrative and Equity-Based Compensation Costs

General and administrative costs are charged or allocated to us based on the nature of the expenses and are allocated based on our proportionate share of Antero Resources’ gross property and equipment, capital expenditures and labor costs, as applicable. These allocations are based on estimates and assumptions that management believes are reasonable.

Equity-based compensation grants are measured at their grant date fair value and related compensation cost is recognized over the vesting period of the grant. Compensation cost for awards with graded vesting provisions is recognized on a straight-line basis over the requisite service period of each separately vesting portion of the award. Estimating the fair value of each award requires management to apply judgment.

Equity-based compensation expenses that are subject to allocation as described in “—Principal Components of our Cost Structure,” are allocated to us based on our proportionate share of Antero Resources’ labor costs. These allocations are based on estimates and assumptions that management believes are reasonable.

New Accounting Pronouncements

Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This ASU removes certain exceptions to the general principles in ASC 740, Income Taxes (“ASC 740”) and also simplifies portions of ASC 740 by clarifying and amending existing guidance. It is effective for interim and annual reporting periods after December 15, 2020. We adopted this ASU on January 1, 2021, and it did not have a material impact on our consolidated financial statements.